From 1 June 2007, all home owners in England and Wales will need to prepare an HIP before putting their home up for sale.
There have been numerous press articles as to whether HIPs will speed up or simplify the home-buying process, which is the object of the government in their introduction. The legislation governing HIPs does not address many of the major perceived problems with the existing conveyancing process such as gazumping and chains. Concern has been expressed by industry bodies that the introduction of HIPs will lead to a “property bubble” in the run up to their introduction in June next year as sellers may rush to market their properties before they are required to spend money on the preparation of an HIP. Will that “property bubble” burst after the initial surge in activity?
What exactly is an HIP?
Under The Housing Act 2004, from June 2007 home-owners, their selling agents or solicitors will be required when marketing homes for sale to put together a pack of information about the property and to make a copy of the pack available to prospective buyers on request.
Under the present home buying process, much of the information needed about a property by buyers and sellers only becomes available after an offer has been made and accepted. This may mean that problems with the property only come to light several weeks later, by which time the buyer and seller may have incurred significant costs in legal fees, searches, surveys, etc. This can cause the terms to be renegotiated, delay exchange of contracts and even result in the buyer and seller deciding not to proceed with the transaction altogether.
Do HIPs affect everyone buying or selling property?
HIPs will affect everyone buying or selling residential property for owner occupation as it will be compulsory to provide one when a residential property for owner occupation is marketed. The duty to put together an HIP arises on the “first point of marketing” and has to be prepared by a “responsible person” for example the selling agent.
What happens if I market my property without providing an HIP?
A fine (initially £200) will be payable if a property is marketed without an HIP since it will be illegal. Paying the fine and then proceeding to market the property without an HIP is not permitted.
How much will it cost to produce an HIP?
HIPs are expected to cost around £600 plus VAT.
What does the HIP have to contain?
The draft Regulations set out a list of “required” documents, that is documents which an HIP must include and a list of “authorised” documents which it may include. It should contain nothing else.
The required (mandatory) documents that must go into the HIP include:
- A set form of HIP index
- A set form of sale statement
- A set form of home contents list (specifying contents in the property which are to be removed or left at the property on completion).
- Title documents eg Official Copy Entries from The Land Registry indicating ownership of the property.
- For leasehold properties: a copy of the lease and service charge details.
- A Home Condition Report (see below).
- In the case of new homes or those being converted a report in a set form if the property is not physically complete before being marketed for sale
- Local Authority searches and drainage and water enquiries.
The authorised (discretionary) documents that may go into the HIP include:
- Certain other title documents for example documents referred to on the register of title at The Land Registry.
- Guarantees relating to the property
- The results of other searches for example coal mining and environmental searches.
Note: Much of the information in the HIP must be not more than 3 months old on the date the duty to provide the HIP arises. If a property is removed from the market and then remarketed at a later date the HIP may need to be updated and the search fees paid again.
Do you only need an HIP when you are selling a commercial property?
If a building has been used for offices, a school or an hotel and is being converted into flats, an HIP will be needed both on the sale of individual flats or the whole building.
Where a residential unit is being sold as say part of a portfolio with commercial premises and the seller does not intend to sell the residential property separately from the business premises, no HIP will be needed. If the seller decides to sell the residential property separately from the rest of the commercial portfolio the duty to prepare the HIP arises.
What about on a residential development where a builder is selling individual units?
The seller would not be able to prepare an HIP for the whole development but will have to do an individual one for each unit.
What is the Home Condition Report (HCR) that has to be included in the HIP?
The HCR is a report which has to be prepared by a Home Inspector – who will not necessarily be a surveyor. The report will neither be a full survey or valuation. The purpose of the HCR is to identify physical problems with the property before an offer is put in. It is not yet clear whether lenders (mortgagees) will be prepared to rely on them so it is likely that lenders may still require borrowers to additionally pay for a valuation. The buyer may also still want to instruct his own surveyor to carry out a structural survey. Whilst the other contents of an HIP can be updated, an HCR cannot be removed once it is in the HIP ie if it reveals a physical problem with the property which the seller then puts right, the HCR cannot be taken out of the HIP.
Further information:
Government website about HIPS
Department for Communities and Local Government HIPs pages
Public service website about HIPs
Who can help?
If you would like further advice about any of the issues considered above please get in touch with your usual contact at plainlaw or Philip Horn on 01865 240202 or e-mail him at philip.horn@plainlaw.co.uk
This edition of “The law made plain” is written to provide you with general information. It is recommended that you seek specific professional advice before taking any action.
© Copyright plainlaw 2006
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